Euro and Pound Positioning are Bullish
Latest CFTC Release Dated May 06, 2008:
The COT Index is the percentile of the difference between net speculative positioning and net commercial positioning measured over the last 52 weeks. A reading close to 0 suggests that a bottom is forming and a reading close to 100 suggests that a top is forming. The readings are for the actual currency, not the currency pair. For example, a reading of 100 on the Canadian Dollar suggests that the Canadian Dollar is close to a top (USDCAD close to a bottom).
Readings of 95 and higher as well as 5 and lower are in boldfaced red type to indicate potential market extremes. The last 4 weeks of the COT Index are shown because it is just as important to know where the index is coming from. For example, an increasing index is bullish until the index is extreme (near 100), at which time the risk of a reversal or pause in the trend increases.
US Dollar Index: The 52 week COT index is at 88 and the 13 week index is at 92. With the indexes remaining very close to extreme territory for multiple weeks now, the likelihood of a turn towards USD weakness has increased.
Implications: Bearish
EUR: The 52 and 13 week indexes are at 2 and 8 after being at 0 last week. A bearish extreme has been realized and the Euro should gain in the next few weeks.
Implications: Bullish
GBP: GBP positioning is similar to Euro positioning. The 52 and 13 week indexes are both at 0. Both indexes has indicated a bearish extreme for about a month now. A turn towards strength is likely.
Implications: Bullish
CHF: The readings are at 33 and 0 for the 52 and 13 week indexes. The 13 week index has moved to 0 for the first time since December (when the USDCHF topped at 1.1594). Exrtemes usually last at least 2 weeks so a turn towards CHF strength is more likely next week than this week. Still, risk has shifted to the upside (towards CHF strength).
Implications: Bottoming
JPY: The 52 and 13 week COT indexes are at 78 and 25 now. The 13 week index bounced from 0 2 weeks ago, suggesting that the trend is back towards Yen strength. We wrote last week that “it is time to begin looking for opportunities to buy Yen again (sell Yen crosses).” The Yen turned last week and there is not reason to alter this outlook.
Implications: Bullish
CAD: The 25 and 50 week COT indexes are at 45 and 83. Neither index indicates potential for a bullish or bearish extreme.
Implications: Neutral
AUD: The 52 and 13 week COT indexes are at 84 and 92. Although the 13 week index has declined from a 100 reading (4 weeks ago), the AUDUSD price has trended sideways. As long as the indexes are close to the bullish extreme levels (95 and above), there is potential for a sizeable decline.
Implications: Topping
NZD: The 52 and 13 week COT indexes are at 6 and . Readings have been low for weeks now, which is suggestive of a bearish sentiment extreme and reversal opportunity. However, this could be the beginning of a larger bear trend. In such instances, COT data will indicate an initial bearish extreme before the big decline begins…so be careful.
Implications: Bullish (but see above)
DailyFX
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